March 3, 2010

Combined reporting costs vary for state, business

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By Andy Rosen
Andy@MarylandReporter.com

For the second year in a row, the state has found that it could have brought in more money if it had instituted a controversial corporate tax measure known as “combined reporting,” but different industries would experience wide swings in their tax liabilities.

Comptroller Peter Franchot’s office released a study this week showing that Maryland would have brought in between $92 million and $144 million more in 2007 if it had adopted the tax policy that is law in 23 states.

The state’s current tax system treats different subsidiaries of corporations as separate entities, and some legislators say this allows large corporations to dodge state income taxes. Combined reporting would lump the subsidiaries together, taxing them on all the revenues they bring in from Maryland.

A state commission on business taxes is studying combined reporting, along with several other issues. The commission was originally slated to make a final report at the end of 2011, but proposed legislation would make final recommendations due this December.

It still appears unlikely that the state will institute the practice this election year, as legislative leaders continue to steer away from new tax measures.

Franchot’s study also increased estimates for what the practice would have generated in 2006, projecting that it would have brought in between $144 million and $197 million more.

The measure wouldn’t uniformly increase taxes for businesses, though. For example, the utility industry would have paid nearly $26 million less in 2007, while retailers would have paid between over $50 million more.

Under combined reporting, small companies would pay less taxes than they do now, and large companies would pay more. According to the report, 745 businesses with no taxable income in the state would have paid $79 million less in 2007.

But 34 businesses that did more than $1 billion in Maryland business during 2007 would have paid between $119 million and $148 million more.

Ronald Wineholt, vice president of government affairs for the Maryland Chamber of Commerce, said he thinks the swings show that the bill’s effect would be unpredictable. He said the effect will be more clear after data from 2008 is available next March.

“This report reinforces our view that combined reporting causes massive shifts in tax payments between industries,” he said. “2007 looks like 2006 because they were both pretty good years. The big difference is going to be when we get the 2008 report this time next year.”

The report also notes that businesses may carry back losses from the recession into 2007, which may draw down estimates for that year.

Sen. Paul Pinsky, D-Prince Georges, the legislature’s strongest advocate for combined reporting, said he’s encouraged by the report. In both years, the report showed the state would collect 20 percent more in corporate taxes.

“I think we stand a very good chance next year after the election,” Pinsky said. “But look, we’re still cutting the budget.”